Wednesday, August 1, 2012

Squeezing a Squeezed Lemon

The market for amateur baseball players operates as anything but a free market. Instead, the draft creates a tightly controlled and restricted market, as it only allows an amateur player to bargain with a single team. In this way, the draft squeezes the player like a lemon, and the team walks away with sweet lemonade.

The most recent CBA made changes to further squeeze this already squeezed lemon. It placed strict caps on the amount teams can spend on draft picks and instituted harsh penalties--such as the loss of subsequent draft picks--for exceeding these limits.

As I predicted in an earlier post, further restricting an already restricted market had a negative impact on spending. In fact, spending by MLB teams in this year's draft dropped 11% from the previous year.

This 11% drop resulted in teams spending $25.8 million less in 2012 than in 2011. That's an average of $860,000 less per team. Where does all this money go? Well, the CBA fails to directly answer that. But indirectly the answer is found.

The money saved will go to major league salaries, as the new CBA requires MLB minimum salaries to increase dramatically over the next few years.
I talked at length in the earlier post about the MLBPA selling out minor league players. I won't bother you again with such talk, but I will make a couple of other points.

Incredibly, the $860,000 average savings per team could nearly double most minor league salaries if it were spent on minor leaguers.
A first-year Double-A player makes around $7500for the entire season. Those in lower levels make even less. While the number of minor leaguers within an organization varies greatly, a reasonable estimate can be made for the amount of players at Double-A and below. For this calculation, we'll say a team retains around 120 players at Double-A and below. While some of these players are at Double-A, most are at lower levels, so we'll assume an average salary of $6,000 per year for these 120 players. What does doubling every one of these 120 salaries require? $720,000.

Most of the minor leaguers would see their salaries doubled, and teams would still be left with an extra $140,000 in their pockets. While not all Triple-A salaries could be doubled with this leftover amount (since more minor league free agents and former major leaguers play in Triple-A), this money could easily be used to double the salaries for the Triple-A players playing under the terms of their original minor league agreements. After all, a first-year Triple-A player makes only a little more than $10,000.

Of course, none of this will happen. Minor league salaries have hardly budged in 35 years. Why would they increase now? Instead, many players will continue to live below the poverty line, and baseball's Robber Barons of the New Gilded Age will continue to profit.

I fear that baseball might be taking steps towards an NFL type of model. While this might be great for college baseball and great for the owners' bottom line, it wouldn't be great for players. It would take away players' freedom of choice, and it would shave away earning years from an athletes' short earning window. And, as stated above, there are better ways to court young athletes, chiefly through the already existing model. Again, I'm all for helping athletes get college degrees. But when two cartels start cooperating with one another, I'm immediately wary. Any resulting gift is most likely not what it seems.

Indianapolis Star Article on Minor League Unionization

James Oldham of the Indianapolis Star also wrote a very good article recently on the obstacles to unionizing the minor leagues. It's worth the read.

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